Schwarzenegger Cuts Pay for State Workers

The stage is now set for a showdown between Governor Schwarzenegger and the man who signs the paychecks of thousands of state workers.Earlier Thursday, the governor signed an executive order cutting jobs and pay for state employees.

No amount of hugs can comfort a stunned Celeste Knox, one of thousands of state workers who received a pink slip. The single mom closed on her very first house less than 24 hours ago ... A house she thought she could afford.

Celeste Knox, Laid off State Worker: "Now I can't because of some little game or some little ploy. It's not fair to me. I showed up to work. I do the job I was asked to do."

With the state budget now a month late and cash reserves dwindling very quickly, Governor Schwarzenegger apologized for signing the order that lays off thousands of part-time and temporary workers this first round and slashes the pay of 200,000 employees to the federal minimum wage of $6.55 an hour.

Schwarzenegger: "It is a terrible situation to be in. I don't think any Governor wants to be in this situation. But this is the only way out."

Unions have been very vocal about the idea ... But the protests neither convinced the governor to abandon his plan, nor did it push lawmakers to agree to a state budget. Now executive order puts pressure on leaders.

Assm. Mike Villines, Clovis, Minority Leader: "I think that it adds pressure. I do. I believe that none of us wants to see something like this. Nobody wants to see people that are being affected that, frankly, don't have a part in the decision process."

Assm. Karen Bass, Los Angeles: "On a given day, I feel like we take a step forward, and then we take a step backwards. I don't see why he needed to do this today."

State workers will get their jobs and full pay back once a budget is in place. But in the meantime, what does Celeste tell her lender?

Celeste Knox: "I don't know when this is going to end. I feel like a homeless person, with no resources at all."